James Kinsella: Interoute wants to use VoIP peering to
remove the need to route calls over the regular phone network
Pan-European operator Interoute is about to launch a bold
outsourcing assault on the corporate telecoms market in a link
The company wants to show corporate customers the financial
benefits of moving all their voice telephony onto IP —
but not just by offering a VoIP link behind the desk
Instead Interoute, which has Swiss and Dubai shareholders,
wants to create a direct link into companies' Microsoft
Exchange systems, which operate their email. The desktop PCs
will replace the phones.
"It will be a Skype-like product," says James Kinsella, CEO of
Interoute. Voice traffic will be integrated into the office
LAN, and there will be inwards and outwards connections into
the regular telephone network — just as Skype does
with SkypeIn and SkypeOut.
However, adds Kinsella, Interoute is planning to link up
individual "VoIP islands" that many enterprises are now
creating, bypassing the regular phone network.
This is a significant move for Interoute, which until now has
been focussing on the wholesale market — though it has
also been making inroads on the world of media, building a
service to distribute content securely over its network.
"We're making a move into the corporate sector," says
Kinsella. He has recruited a director of voice services, John
Wilkinson, to head this move into the converged world of voice
Video from Outlook
"There will be announcements in the next few months," says
Wilkinson. He links products that Interoute will offer as
off-net and on-net calling using VoIP via Microsoft Outlook,
"including video from the desk top", and instant messaging with
presence indication. "We'll have full PSTN access, in and out,
and free conference calling."
But he is looking wider than that. Because the new service the
Interoute will be launching runs on Outlook, the company will
be looking at a hosted solution for its customers: it will be
acting as an outsourcer of Microsoft Office-based services as
well as a telecoms supplier.
Interoute has been steadily growing for the past few years,
following a bumpy start and a restructuring. The main
shareholder is the Swiss-based Sandoz Family Foundation. There
are no publicly-traded shares, so numbers are not
A year ago Dubai Holding invested around $145 million in the
company, via Tecom, a telecoms operator based in the United
Arab Emirates. According to Kinsella, "Dubai Holding has a
focus on telecoms infrastructure in the Arab world with a
bridge into the western world — which is us."
Other investments in the group include Du, a new mobile
operator in Dubai itself, as well as Maltacom and Tunisie
Telecom. It has a 60% stake in the Maltese operator and earlier
this year successfully bid $2.25 billion for a 35% stake in the
"Dubai has a minority shareholding in Interoute," says
Kinsella. "The Swiss are still the majority." However Dubai
Holding is now advising Interoute on its strategy for eastern
and southern Europe.
In August Interoute bought Telecom Partners Network, a
Bulgarian operator, for an undisclosed sum. Bulgaria is due to
join the European Union in January 2007. "We want to extend to
Turkey," says Kinsella, "where we've set our sights on
partnering with a Turkish entity." The company is looking for
Turkish partners, he adds.
With the help of its Swiss — and now Dubai —
money Interoute has built through acquisition for the past few
years. A year ago it completed the acquisition of the
operations of Via Net.works in Spain, France and Germany, and
of all PSINet Europe operations in Germany, France, Belgium,
Netherlands and Switzerland. (PSINet in the UK went to
Previous acquisitions included network infrastructure of
Ebone, applications and services of Virtue Media Services, and
CeCom's network in the Czech Republic, Slovakia, Hungary,
Austria, Germany, Poland and Romania.
"The aim is to drive the company south and east, and into the
corporate space," says Kinsella.
Half of the company's new revenue comes from corporate
accounts, he adds, though wholesale business is still in the
majority. "Wholesale is a very good business."
Virtual private network
The move into the corporate sector is driven by advancing
technologies, he says. Interoute will be using its network "to
allow one Microsoft user to get to every other", says Kinsella.
"If they're on our virtual private network so much the better",
but it's not a requirement.
Interoute plans to join XConnect, a VoIP peering company, says
Kinsella. Interestingly, Ohad Finkelstein, his predecessor as
CEO of the company, is now on the board of XConnect, which has
expanded rapidly from a European base — Swedish and
Dutch VoIP operators were among its early users —
towards North America.
Corporate customers will use a soft client at first to link
into Interoute's system. "We're doing a lot of work with
Microsoft," he adds, and Microsoft is working on integrating
its system with office PBX networks. "We're signing beta
customers up now."
Once Interoute gets the system rolling, the company wants to
start selling the next versions of Office and Outlook to
clients. These are expected to follow the launch of Windows
Vista, Microsoft's latest operating system. The next version of
Outlook includes voicemail and other VoIP-based features, says
Kinsella. There are also features to make Outlook more suitable
for mobiles with wifi.
Interoute has put a significant part of its development team
into this project, he adds.
"Our biggest target market is existing customers, around
10,000-15,000 corporate customers." And he believes that legacy
operators will be unable to compete with the new product
Users will be able to set up a call by clicking on a name in
their Outlook contacts directory — just as those who
have downloaded the right Skype add-on already can. But Skype
is outside the emerging collaborative VoIP world: the
alternatives are to choose between a free Skype-to-Skype call
to another Skype user and a paid-for SkypeOut call to a regular
The first stage of what Interoute plans to do is provide all
on-net calls within a customer's network free — pretty
much like any other VoIP operator — but then it will
extend this so that someone in company X will be able to call a
customer in company Y free if both are on the Interoute
service. They won't need to know that both are Interoute users:
there will be an automated, seamless central directory.
But Xconnect is taking this vision globally. Already a VoIP
customer of Telio in Norway can call a customer of VozTelecom
in Spain for nothing, via the XConnect peering system. Both
Telio and VozTelecom were founders of XConnect.
Without such a system, when a Telio customer dials a Spanish
number the call would default onto the legacy phone network.
Once it got to Spain, the carrier there would port it back to
the local VoIP system. Now, Telio identifies — via
Xconnect — that the call is destined for another VoIP
network. With peering, the call stays IP all the way and the
participants benefit from the extra features of VoIP.
And the VoIP networks save money by not having to use regular
telecoms networks to deliver their calls.
Some calls inevitably need to get onto the PSTN: if they're
bound for a regular, analogue number. But the industry still
uses the PSTN as the default network for delivering calls to
any number worldwide, losing the benefits of all-IP routing,
including marginal price.
Interoute wants to offer a similar facility to its corporate
service. As more and more enterprises move to VoIP, the company
sees opportunities for calls from company X being made entirely
in the IP world to more and more other companies worldwide
— bypassing the regular telecoms networks and cutting
costs for enterprises.
Replace the phone
Interoute aims at completely replacing the phone on the office
desk with its new service, using e-numbering. "Ideally we'll
use call forwarding" so that calls to a regular phone number
will be automatically rerouted to the IP service.
"You will also be able to forward calls to a mobile," says
Wilkinson. "Something like this will kill roaming
Meanwhile, says Kinsella, Interoute has been doubling its
revenues year on year while keeping network costs relatively
flat. He pulls out a chart which show network costs have risen
gradually from around £37 million a year in 2003 to
£40 million now, while revenue has risen from £10
million to £90 million in the same time. Capex and opex
have both risen in the same period.
"Capital expenditure has stabilised and will be down next
year," says Kinsella. The company has helped to slow the growth
in opex by consolidating offices: "We had five in London
alone," he says. Now all are in one building, with a back
office in Prague. "It's not as cheap as India, but ...," he
shrugs: it's in central Europe and is close to his customers.
Head office "has got to be in London, but the UK is so
So, following the Bulgarian deal he's looking to fill gaps in
the network in eastern Europe, listing Poland and Romania as
well as Turkey. "We're looking for partnerships in Turkey and
we're also looking for acquisitions in those areas. We'd like
to do what we did in Bulgaria," he adds.
The company has a ring starting in St Petersburg in Russia.
"We spent a week in Moscow but we walked away."
Extension towards the south and east, and the Dubai
shareholding are important, but "the breakthrough is the
technology", says Kinsella, turning to Wilkinson: "John's voice
product is at the base of it."
Interoute's revenues have increased in the past three
years while network costs have stayed relatively flat